Yen soars as central bank suggests more interest rate hikes. The Bank of Japan has raised short-term interest rates by a quarter point, the highest in 17 years, signalling efforts to normalise monetary policy in response to persistent inflation and increasing wages.
The central bank raised the policy rate to “around 0.5 per cent” by a vote of 8-1, concluding a two-day policy meeting on Friday. Toyoaki Nakamura was the only board member to dissent against the decision. The bank’s governor, Kazuo Ueda, had signalled the hike to avoid a market shock as the broad direction of new US president Donald Trump’s policies became clearer. “There’s no change to our view of raising our policy rate and adjusting the degree of monetary support if the economy and prices move in line with our forecasts,” the governor said.
This was the highest hike in borrowing rates in Japan since the 2008 financial crisis. The central bank had last raised the rates in July 2024, surprising analysts, sparking a period of intense volatility for the yen and prompting a one-day "flash crash" in Japanese equities which quickly rebounded.
The latest hike came as official economic data showed prices of goods and services, excluding certain volatile items like food and energy, increased by 3 per cent in December over the previous year. The data indicated that consumer inflation could reach 2.7 per cent for the year ending March 2025, up from the October forecast of 2.5 per cent.
